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Former Pa. DEP chief Krancer discusses court decision on gas drilling

Following last month's Pennsylvania Supreme Court decision overturning sections of the state's gas drilling law, how much authority do municipalities now have over drilling practices? During today's OnPoint, Michael Krancer, former secretary of the Pennsylvania Department of Environmental Protection and now chairman of Blank Rome's energy, petrochemical and natural resources practice, discusses the ruling and its implications for Marcellus Shale operations. He also weighs in on the impact of this year's Pennsylvania gubernatorial race on the future of fracking.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Michael Krancer, former secretary of the Pennsylvania Department of Environmental Protection and now chair of Blank Rome's energy, petrochemical and natural resources practice. Michael, it's great to have you here.

Michael Krancer: Well, it's great to be here. Thanks for having me.

Monica Trauzzi: Michael, last month the Pennsylvania Supreme Court made news by overturning sections of the state's gas drilling law. How much pull do municipal governments have now after this change?

Michael Krancer: Well, we're going to be unpacking this decision for quite a long time into the future. Clearly the Supreme Court, this is a plurality opinion. It was only three justices that held on environmental rights grounds; the other one was on due process grounds. But we will be dealing with the impact of this way beyond the natural gas industry but into all industrial activity in Pennsylvania.

Monica Trauzzi: You contend that municipal governments are the only winners here. You even think that environmental groups are losers in this, industry you would consider a loser. Why?

Michael Krancer: Well, let me drill down on that a little bit. The only municipalities that are winners here are the ones that are on the caption of this lawsuit. The other 2,495 municipalities in Pennsylvania are losers, big losers because now they're open to lawsuits against them for not doing enough to implement the Environmental Rights Amendment, or ones that don't have any zoning, they're open to being forced to have zoning, being sued because they don't have zoning. So it's a very, very small group of municipalities that are the winners in this particular case.

Monica Trauzzi: But ultimately shouldn't municipalities have control over such a critical energy and environmental practice that has direct benefits on what's happening?

Michael Krancer: Absolutely, and that's what Act 13 was about. It was about balancing that control versus other interests. We can't forget the constitutional rights also of the royalty owners, the landowners who own the mineral rights to the minerals underneath the land. That's the constitutional right that was never mentioned in the Supreme Court decision but is also being played out in New York. It's interesting. It's a tale of two cities or tale of two states. In New York there's going to be a lawsuit, already is, that the state is violating the constitution by prohibiting the activity.

Monica Trauzzi: Back in March of last year when you announced you were leaving the department, EnergyWire reported that environmentalists saw your departure as a way to change the momentum on Marcellus regulations. Is this ruling a signal that the state in fact has not been doing enough to protect all interests?

Michael Krancer: Oh, on the contrary I think frankly the Supreme Court whiffed on this ball. The legislative branch and the executive branch are doing tons. None of that was credited by the Supreme Court. As a matter of fact the Supreme Court found facts that were never even presented, never in the record. Supposedly the Supreme Court found that the activity would be detrimental to the environment, et cetera, et cetera. But that's why the Legislature and the executive branch got together and put Act 13 together and why the governor, when he first got into office, appointed the Marcellus Shale Advisory Commission. And Act 13 was that political, legislative process that balanced all those interests.

Monica Trauzzi: So do you think you adequately addressed Pennsylvania's concerns while you were at the department in terms of regulations?

Michael Krancer: Absolutely. I think from the mainstream point of view you're never going to in government, or anywhere, in broadcasting, please all the people all the time. But our regulatory program was reviewed by the nonpartisan STRONGER, State [Review] of [Oil] and Natural Gas [Environmental Regulations], it's a nonpartisan group. We've been reviewed twice, once before I got there, once after I left, and both times got very good reviews for the nuts and bolts of the state's regulatory program.

Monica Trauzzi: How does the court's decision affect the Marcellus Shale's ability to compete on the national level?

Michael Krancer: Well, that's a great question, and I think the Marcellus Shale, and I've written about this, is the superstar of all formations anywhere. And it is outperforming anywhere else in the world right now. The production figures for '11 and '12 show that Pennsylvania is outproducing, or growing, the production is growing at a faster rate by over 1,000 percent than Texas. So the Marcellus Shale is a juggernaut of a formation. And this opinion, although some may wish it were the death knell of the industry, is not the death knell of the industry. This energy renaissance centered in Pennsylvania will continue.

Monica Trauzzi: So then are there economic impacts? If gas drilling operations are not being affected, are there economic impacts that you see coming from the court's decision?

Michael Krancer: Well, I think that the court's decision creates uncertainty, and investors and companies making investment in job creation, and that's what investment is, job creation, uncertainty is the enemy of investment. So I think you're going to have investors that are going to be making their own take on this decision. And frankly I think they and job seekers are amongst the losers from this Supreme Court decision.

Monica Trauzzi: Is this decision cause for concern for other states?

Michael Krancer: This is a decision that will be cited by everyone everywhere, maybe even internationally, no question about it. We have the Environmental Rights Amendment of Pennsylvania. I'd have to look and see what other states have on the constitutional status of an environmental rights amendment, but there's no question that this decision will be cited by others seeking bans, seeking greater regulation, et cetera, et cetera.

Monica Trauzzi: Let's talk about Pennsylvania politics, always interesting. The governor's race could have a real impact on the future of drilling and regulations. What are the scenarios you see developing?

Michael Krancer: Oh, they're all over the place. I mean, right now, I mean, full disclosure: I came out of a Republican administration. I'm a Republican. I'm a defender of the environment first, Republican by stripe. The Democratic field is crowded right now. It's enough to field a baseball team and might be enough to field a football team pretty soon, might be enough to field even more. And there are some very divergent views out there. There's talk in the Democratic camp of moratoria on drilling. There's talk about severance tax, and the Supreme Court's decision did put the impact fee, which was another part of Act 13, in peril because that's now back at the Commonwealth Court to be reviewed. But it'll be a very interesting, as it always is in Pennsylvania, a very interesting year for gubernatorial politics, as it will be nationwide frankly in 2014. It'll be very interesting.

Monica Trauzzi: I want to get one final question in about LNG exports. How do you see the financing of these facilities developing? Because it's going to be impossible for all these facilities that have even gotten approval to be financed.

Michael Krancer: Well, first of all let me just say in my opinion it's a no-brainer for America that we ought to be exporting natural gas to our allies. I mean, think of the countries that will be our trading partners. It'll be the Japans of the world, the European countries and so forth. And who are the losers going to be? The Russians. The Venezuelans. They're not exactly on the top tier of our friendship list. The finances and how these things will be financed, the market will determine all that. Of all those that have applied or are on the list, nobody thought, nobody with any economic sense or investment sense thought that all of those facilities were going to be built. That was a nonstarter to begin with. So some will, some won't. I would like to see the ones prioritized that are the most ready to go, the most close to being shovel-ready. We have one right in the area here, in Cove Point, Maryland, will actually be being used for export to Japan. And this is a great win-win for America, balance the trade. Being an energy exporter is a great thing. Just ask the Saudis how great it can be. So again I think it's a win-win, it's going to happen, and the economics are going to drive which facilities, how much is exported, and so forth.

Monica Trauzzi: All right, we're going to end it right there. Thank you so much for coming on the show. Nice to see you.

Michael Krancer: Thank you very much.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.